On the Equilibrium and Welfare Consequences of 'Keeping up with the Joneses'

Frédéric Gavrel and Therese Rebiere

No 9056, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper provides an analysis of the social consequences of people seeking to keep up with the Joneses. All individuals attempt to reach a higher rank than the Joneses, including the Joneses themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat-race effect, individuals devote too much energy to climbing the social scale in this equilibrium. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Unexpectedly, numerical simulations show that this theory could account for the observed distribution of intermediate wages.

Keywords: Keeping up with the Joneses; social interactions; well-being; inequalities; efficiency (search for similar items in EconPapers)
JEL-codes: D3 D6 D8 I3 Z1 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2015-05
New Economics Papers: this item is included in nep-hap, nep-hpe and nep-mic
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Related works:
Working Paper: On the Equilibrium and Welfare Consequences of Keeping Up With The Joneses (2015)
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